Select Water Solutions, Inc. (WTTR) Earnings

Management highlights

First quarter was strong; water infrastructure outperformed guidance, grew volumes, record revenue; added new contracts across regions; closed acquisitions in Northern Delaware Basin; SG&A decreased by over 6%; strong performance in segments; focus on commercialization and growth opportunities

Guidance

Water infrastructure full-year growth guidance raised to 25%-30% YoY from 20%-25%; Water services expects low single-digit revenue decline in Q2; Chemical technology expects 10%-15% revenue growth QoQ in Q2, margins 20%-21%; Full-year chemical technology has upside potential; Q2 adjusted EBITDA expected 77-80M; 2026 net CapEx expected 200-250M, with 50-60M for maintenance

Segment performance

Water infrastructure: Grew recycled and disposed volumes, revenue up 19% QoQ, record revenue of $97M, gross margins before DNA 56%, on track to exceed full-year guidance; Water services: Revenue up 7% QoQ, expects low single-digit revenue decline in Q2, margins 20-22%; Chemical technology: Revenue and margins in line in Q1, expects 10%-15% revenue growth QoQ in Q2, margins 20%-21% in Q2 with upside potential for full year

Risks & headwinds

Geopolitical tension in Middle East impacts commodity outlook; Commodity price fluctuations affect costs; Supply chain disruptions; Integration risks of acquisitions

Analyst Q&A

• Q: Hey, good morning, guys, and congrats on a really nice quarter. I guess not to take the spotlight away from water infrastructure, but as we've seen this oil market kind of turn pretty remarkably post-Iran conflict here, obviously I've heard a lot of commentary from other U.S. land OSS providers about prospects for getting things getting better. And you guys have kind of suffered through going on four years of impact there, especially in water services and to some extent chemical technology. So we'd kind of love to hear your thoughts about, you know, what you see out there for prospects of that ramping up over the back half of this year, just kind of given the market shift here.

  A: Yeah, Jim, this is John Schmitz. I would, you know, logically, most of water services now have a big exposure to completion activity. It really relates to our water infrastructure, but, you know, moving water to the completion job is a big piece of our capture as well as the, you know, the friction reducers or surfactants that we're building for the frac chemistry. in the chemical side. We are having conversation now and we are hearing from the market that the commodity price that we all watch ramp and the effects of that, they are pulling both the intensity of which they're completing the wells or bringing new oil online uh, starting to, uh, have those conversations or see that effect as well as we would also say that, uh, we're, you know, we're also seeing, uh, you know, customers that, let's say they had four frack crews running, they were going to drop one in the second quarter. They're not dropping it now. They're keeping four running or, you know, Whether it's through the horsepower of the frac company or through our customer base in the E&P side, we are hearing of adding more frac crews. We do believe we'll have some intensity from the macro, probably first to see something pull forward, get it to market faster, or the intensity of adding to the volume. or repairing the volume and refracting or just making sure the oil is still being produced and sold. And maybe to just add on top of that, Jim, I'd say from a financial perspective, we're certainly going to be, I would say, looking for a close dialogue with our customers on an ongoing basis here to see what the outlook looks like and whether that, if activity gets pulled forward, whether it stabilizes on a through cycle basis through the end of the year and what the impact is on, you know, customer budgets and the outlook. I'd say for, you know, the chemicals business, you know, we're guiding the, you know, pretty strong, you know, double-digit growth in the second quarter here. And that's, you know, absent, I would say, any material uplift in activity. It's really driven by the intensity of what's going on in that business. And so, you know, based on the numbers we're putting out in front of you, we're not, you know, we're not taking an aggressive outlook on the activity framework here. But, you know, whether it's services, whether it's chemicals, or whether it's the pull forward of volumes getting onto the infrastructure side, you know, we're taking, I would say, a pretty sober approach to what the macro outlook looks like. But we're well positioned to capitalize on any uplift in activity or any pull forward or hopefully, you know, also the potential to stabilize or look at pricing opportunities as well, particularly on the services side.